Why Bi-Weekly Payment Programs Are Great For Your Bank And BAD For You.

It seems amazing to me how the allure of saving thousands of dollars over a very long period of time can cause otherwise very intelligent people to waste thousands of dollars in a very short period of time.

The pitch seems almost too good to be true...
...Save $23,500.
...Knock 5 years off your mortgage.

Most people hear these two statements and ask "Really?" Can I do that? Generally followed with "What's the catch?" So they call the 800 # and ask the bank about the program. The slick salespeople convince you that Yes, you can do that, and no, there is no catch.

But there is a catch...
...And they hope you never figure it out

Now we all know that your bank always has your best interest mind in everything they do, Right? After all, we all bank somewhere. Why shouldn't I trust my bank to do the best thing for me? Well, the answer to this question rests in the simple fact that your bank wants you to trust them. Your bank needs you to trust them. Banks could not exist if you did not trust them, so they exploit this trust to make themselves more money at your expense. Keep in mind that your bank makes its money off of your money. The longer your loan is outstanding, the more interest they earn.

So why would your bank help you reduce the amount of money they earn? Why would they want to encourage you to reduce the balance and term of your loan? It's certainly not in their best interest. So why would they want to let you do this?

They don't. But banks are not stupid, either. For years there have been businesses out there offering a service to help people like you and me save money. The banks realized that if their customers are willing to pay a fee to get this service, then by golly, they are going to find a way to do it too, and recoup some of that lost interest. Some of them offer this service themselves and others through a subsidiary or an affiliate company. Either way, they minimize the amount you save because of the way they run the program.
Their program is rigged in their favor. They know it and hope you never find out. That's why the hate people like me.

I want you to know.
It is in your best interest to know.
Not knowing could cost you thousands.
Not knowing makes the banks richer too.

Don't even get me going on their fees In addition to a hefty set up fee that runs anywhere from $375 to $500, they also charge you a transaction fee every time you let them take a payment. That's right... They take a payment automatically, which costs them pennies and charge you a $3-$5 fee for the privilege.
Every two weeks, the bank deducts one half of your mortgage payment and then sits on it for two more weeks. That's right, they don't apply it to your loan, they hold it, invest it, make money off of it for two whole weeks. This is because your mortgage note requires you to make your payments in full each month, not two half-payments.

At this rate, it will take 11 months before you see any extra money applied to your mortgage balance and then, only after paying $500 or more in fees for the privilege. Oh, and doing it their way also pays one extra payment into your escrow account creating a surplus. When they do the annual adjustment, they will send the overage back to you.

The best way to get the most bang for your buck is to beat them at their own game. Divide your payment by 12. Each month when you make your payment, add this amount and signify that it is to be applied to Principal. No set up fee, no bi-weekly service fee, nothing extra going to your escrows. 100% of the extra you send goes straight to principal reduction. The best part is that you will see the interest reduction immediately. In fact the savings is so great, that you can save nearly twice as much interest by NOT using their bi-weekly program.

So as it turns out, the best Bi-weekly is not a Bi-weekly.

~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ Licensed in California and Arizona ~ www.LoansA2z.com 888-889-9950